- Taper in focus ahead of Fed meeting
- Barclays sees upside risk to GDP forecasts after budget deal
- Obama would sign budget deal if Congress approves
- Stanley Fischer reportedly in race for Fed Vice-Chair
Dow Jones: -0.47%
S&P 500: -0.81%
US stocks declined on Wednesday despite the news of a budget deal in Washington as investors speculated the impact it will have on the Federal Reserve's monetary policy decision next week.
Chief Congressional negotiators Senator Patty Murray and Representative Paul Ryan last night worked out a deal that would set spending at about $1.01trn in the current fiscal year, up from the $967bn required in a 2011 budget plan. The budget still needs to be passed in both the Senate and the House.
If passed, it will end three years of impasse and fiscal instability in Washington that culminated in October with a partial government shutdown. The budget comes before a non-binding Friday deadline and more than a month before the January 15th date when existing funds to run many federal programmes expire.
According to analyst Michael Gapen from Barclays, the agreement will cut the estimated drag from fiscal policy next year in half and, if passed, "would lead to a modest direct boost to gross domestic product (GDP) and some upside risk to our forecast of 2.4% for real GDP growth in 2014".
However, he said that while the deal reduces the potential for fiscal brinkmanship surrounding the budget, it "does not provide for an increase in the debt ceiling past February 7th, nor does it address longer-term structural budget issues".
Nevertheless, with Fed officials recently citing the drag that fiscal policy has had on the economy, some analysts believe that this new accord supports the case for a scaling back of stimulus at the central bank's policy meeting on December 17th-18th.
According to a recent survey by Bloomberg, 12 out of 35 economists believe that the Fed will begin to taper next week, nine said a withdrawal will start in January while the remaining 14 don't expect a scaling back of stimulus until March.
In the afternoon a White House spokesman said President Obama would sign the deal into law if it is passed by Congress.
The US federal government recorded a budget deficit of $135.2bn in November (consensus: $140bn), 21.4% less than a year ago.
Costco misses estimates
Costco Wholesale declined as the US warehouse-club chain said net income rose to $425m or 96 cents a share in its first quarter, up 2.2% year-on-year but below the 102 cents expected by analysts. Revenue grew 5.5% to $25.02bn but this also missed the forecast for $25.35bn.
Mastercard jumped after saying its board of directors approved an 83% dividend increase.
Avanir Pharmaceuticals dropped after the drugmaker said a phase II study of AVP for the treatment of multiple sclerosis did not meet the primary efficacy endpoint.
Cisco retreated after losing a European Union (EU) General Court bid to overturn EU approval of Microsoft Corp.'s 2011 takeover of Skype Technologies. The stock was also started at 'sell' on Wednesday by analysts at Citigroup.
Oil futures slip
Front month West Texas crude futures were down by 1.14% to the $97.37/barrel mark on the NYMEX.
10-year US Treasury yields rose four basis points to 2.84%.